The Reserve Bank of India (RBI), on April 27, 2026, issued the “Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026” to strengthen prudential norms for credit risk management. These Directions, issued under the Banking Regulation Act, 1949, introduce a forward-looking framework while incorporating stakeholder feedback, and will come into force from April 1, 2027, replacing the 2025 Directions upon commencement.
The Directions introduce a significant shift by adopting the Expected Credit Loss (ECL) framework for provisioning, alongside retaining the existing norms for classification of Non-Performing Assets (NPAs). Key features include a staging approach for asset classification, forward-looking provisioning based on credit risk, and adoption of the Effective Interest Rate (EIR) method. The framework also lays down detailed methodologies for determining Significant Increase in Credit Risk (SICR), Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD).
Additionally, the Directions provide comprehensive guidance on income recognition, model risk management, disclosures, and regulatory reporting. They aim to improve transparency, comparability, and resilience in the banking sector by aligning Indian regulations with global financial reporting standards, while ensuring robust governance, audit, and risk management practices across commercial banks.
[Notification No. RBI/DOR/2026-27/398]
